Largecaps over SMIDs: Ambit’s Nitin Bhasin and Bharat Arora share their Samvat 2083 strategy

After two years of muted market returns, Nitin Bhasin, Head - Institutional Equities, Ambit, and Bharat Arora, Lead Equity Strategist, Ambit Capital are advising investors to stay defensive in Samvat 2083, favouring largecaps, banks and debt over expensive mid- and smallcap stocks as earnings growth faces further pressure.

Edited excerpts from a chat:

As Samvat 2083 begins, the sharp divergence between the performance of largecaps and small/midcaps have attracted attention. Some think that largecaps have enough value after correction, while others argue that the SMID space has higher growth and winners of the future. Which side are you and why?

We continue to prefer large-caps, as elevated input costs will weigh on gross margins impacting growth, while expectations remain high. Based on our business cycle framework, India’s economic growth entered a slowdown in 1QFY27, which is expected to last until 4QFY27, based on RBI’s GDP estimates. During such phases, earnings growth considerably moderates, with SMIDs underperforming large caps. While SMID valuations have moderated, they continue to trade ~32-35x TTM P/E, a level from which SMIDs have rarely delivered meaningful returns.

After two years of muted market returns, are we going through a normal earnings-led consolidation or an early warning that India’s structural growth premium is being re-rated?

FY22-24 was a period of elevated earnings growth and earnings estimate resilience, post which Nifty earnings growth normalized to 7-8% over FY25-26. While consensus estimates price in a growth recovery over FY27E (15%), we see risk and expect downgrades in 2HFY27, limiting return potential. FIIs remain sellers as India lacks AI-linked opportunities, which have been the catalyst of superior earnings growth for economies like South Korea and Taiwan. Amongst EM, India’s 1-year fwd. earnings growth is one of the lowest and valuation is one of the highest, appearing unfavourable on a risk-reward perspective. As a result, while India’s structural advantages (rise in discretionary consumption, elevated credit growth, sectoral diversification, large & liquid opportunities) remain intact, market momentum is expected to remain lower, driven by moderating earnings growth.

Which sectors are showing the strongest combination of earnings visibility, balance sheet strength and reasonable valuations as we enter the new Samvat?

Banks stand out on account of rising credit growth, pristine asset quality and reasonable valuations. Credit growth has outpaced deposit growth for last 14 months & stands at its highest level in over a decade. Deposit growth, bolstered by recent FCNR(B) inflows, will support balance sheet expansion. NIMs are poised for a gradual recovery into 4QFY27 & FY28, aided by full transmission of repo-rate hikes and liquidity deployment. Sector asset quality remains resilient, characterized by declining NPA ratios, and disciplined credit costs (0.3%–0.7%). Though El-nino and macro-uncertainty continue to remain monitorables. Divergence between the sector’s Mcap (13%) and PAT (23%) contribution to NSE500 index remains stark & with estimates remaining resilient, we expect sector to outperform over the near-term, especially with high likelihood of additional repo rate hikes of 25-50bps by Mar’27.

Which sector or investment theme could emerge as the dark horse of Samvat 2083, and what underappreciated fundamental trigger could unlock that opportunity?

Cement could emerge as the dark horse of Samvat 2083, with an underappreciated recovery in cement spreads acting as the key earnings trigger. In Jun-26, we highlighted a tactical opportunity in the sector, anticipating moderation in elevated fuel costs. However, the prolonged West Asia conflict pushed landed pet coke and Indonesian coal prices up 37% and 14%, respectively, further compressing spreads. We believe spreads have now bottomed, with spot cement prices already ₹10–15/bag above the 2Q average. A combination of improving realizations, better regional pricing and an improved product mix could drive margin recovery despite elevated fuel costs.

For an investor with ₹10 lakh and a five-year horizon, how would you allocate capital across large-caps, midcaps, small-caps, debt, gold and international equities and what would make you change that allocation?

In the current environment of elevated geo-political uncertainty, rising inflation and growth slowdown, we would favour a relatively defensive allocation, with a preference for large-caps and debt –

Large-caps: 50% – Prefer firms with reasonable valuations and resilient earnings estimates.

Debt: 20% – Attractive risk-reward as interest rates approach their cyclical peak.

Mid/small-caps: 15% – Maintain limited exposure given stretched valuations and potential earnings growth moderation.

Gold: 10% – Portfolio hedge against geopolitical and macroeconomic uncertainty.

International equities: 5% – Primarily for diversification benefits.

I would consider increasing SMID exposure as valuations normalize and earnings visibility improves. A reassessment of the growth outlook post-2HFY27 would also be key to determining the extent of any increase in equity exposure.

Gold now occupies a larger place in many portfolios. Should investors continue adding to it, hold their existing allocation or rebalance toward equities?

Gold remains a structural portfolio hedge amid the ongoing global debasement trade, driven by rising global debt levels, persistent fiscal deficits, currency diversification by central banks and concerns around the long-term purchasing power of fiat currencies. We believe investors can continue to hold gold at current valuations, while maintaining disciplined portfolio-level allocations rather than chasing momentum.

What is the one investment mistake investors should avoid in Samvat 2083 and the one opportunity they should not miss?

The biggest mistake to avoid is chasing stocks with high growth potential without adequate regard for valuations and the macroeconomic backdrop. With global yields rising, growth moderating and India lagging in the AI opportunity, investors should prioritize capital preservation over chasing outsized returns. We believe entry multiples are as important as growth forecasts. Recommend a conservative asset allocation, with a strong emphasis on maintaining an adequate margin of safety. The opportunity lies in selectively accumulating quality businesses where valuations have corrected ahead of an eventual earnings recovery.